The TV and radio ads for funeral insurance may be compelling, but most people who sign up end up cancelling the policy.
Many consumers do not understand what they’re getting with funeral insurance and that there are other ways to save and pay for their final farewell, the corporate regulator says.
Ads on television, particularly daytime TV, and radio account for two-thirds of sales of funeral insurance policies and many consumers do not understand what they have signed up for, the Australian Securities and Investments Commission found.
“The high rate of cancellations points to problems not only with cost, but the design, marketing and sales of funeral insurance,” ASIC deputy chair Peter Kell said on Thursday.
“It appears that many consumers do not understand important features of the product until after they have signed up.”
The number of cancellations represented 80 per cent of policies sold in 2013/14 with cost cited as the main reason, an ASIC review found.
Fifty-five per cent of people dropped the policy in the first year.
A large number of the cancellations came outside the cooling-off period, meaning consumers forgo any benefit from the premiums they had paid.
People aged 80 to 84 pay four times more than 50-54 year olds in average premiums, ASIC found.
“Steeply increasing premiums place a burden on ageing consumers at a time when their income is more likely to be fixed or decreasing. Coupled with this is the risk of paying more in premiums that the policy is worth,” it said.
ASIC said many consumers don’t understand key features such as premiums increasing with age, the total cost of the insurance compared with the real cost of a funeral and what will happen if they miss payments.
People were also not aware that they could meet funeral costs by other means, such as pre-paying by instalments or buying funeral bonds.